Mexia Inc. has been a wholesale distributor of automobile parts for domestic automakers for 20 years. Mexia has suffered through a recent slump in the domestic auto industry, and its performance has not rebounded to the levels of the industry as a whole. Mexia's income statement for the year ended December 31, 20A, is as follows:

Mexia's management team is considering the following actions for 20B, which they expect will improve profitability and collectively result in a 5% increase in unit sales:
(a) Increase sales prices 10%.
(b) Increase advertising $420,000 and hold all other marketing and administrative expenses at 20A levels.
(c) Improve customer service by increasing average current assets (inventory and accounts receivable) by a total of $400,000, and hold all other assets at 20A levels.
(d) Finance the additional assets at an annual interest rate of 10% and hold all other interest expense at 20A levels.
(e) Improve the quality of products carried; this will increase the unit cost of goods sold by 6%.
Mexia's 20B effective income tax rate is expected to be 40%-the same as in 20A.
Required:
Prepare a budgeted income statement for Mexia Inc. for the year ending December 31, 20B, assuming that planned actions would be carried out and that the 5% increase in unit sales would be realized.

Transcribed Image Text:

Mexia Inc. Income Statement For the Year Ending December 31, 20A (in thousands) Net Sales Less cost of goods sold $9,000 6,000 $3,000 Less commercial expenses $780 900 Marketing expenses Administrative expenses Income before interest and taxes Less interest expense Income before income tax Less income tax.... Net income 1,680 $1.320 140 $1,280 51 S768